The Speculator's
Corner
A Good Week for Those Who Kept Their Heads -- and
Canes
By Laurel Kenner and Victor Niederhoffer
2/4/00
7:18 PM ET
URL: http://www.thestreet.com/comment/thespeculatorscorner/877972.html
It was a great week for the old men with canes. As memorialized by Henry Clews, wise investors get out their canes and hobble down to Wall Street in times of market fear. There, they buy good stocks on the cheap with reserves they've put aside for just such a purpose, quickly realize profits and retire to their stately mansions.
On Monday, S&P 500 futures slumped to 1357 at noon from 1366 at the open. It looked like the end of the world. But by the final 15 minutes of trading after 4 p.m., the contract topped 1400.
As in Beethoven's "Fifth Symphony," after the major theme triumphs over the minor one early in the first movement, one suspects the storm will return. A rumor on Thursday that a big West Coast hedge fund had been mortally wounded by the short squeeze in Treasuries seemed on the verge of killing the stock market. The S&P contract sank to 1405, after opening at 1424.5. Again, there was a heroic rally, and the contract closed at 1436.4.
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| Source: Harry Pincus |
After this morning's employment report, the active S&P contract rose, which was de rigueur. The S&P rose on 20 of the last 24 employment release days. In aggregate, since the end of January 1998, the S&P 500 contract has gained 340 points to its current level of 1438 from its adjusted level of 1098.
Moves on the 24 employment days accounted for 271 points. Thus, the Rip Van Winkles who woke up every month to buy at the Thursday close before employment Friday and held through the day would have captured 82% of the move. Who says this job is tough? Just to keep us on our toes, though, the contract closed down 4.9 points at 1431.5, but still up 4.7% for the week.
When it was all over, those who sold on Friday, Jan. 28 -- thinking that January would be a losing month and that "as January goes, so goes the market" -- lost money this week.
The trend-followers lost money. They sold at the lows of Jan. 31 as moving averages and weekly closing levels fell below their recent norms.
The big money that shorted Treasuries to hedge corporate bond purchases lost money.
Cane investors, though, who bought on the lows of Monday and Thursday, deposited their profits and parked the canes back in the closets.
Curious as to whether cane investing had grown in popularity since our Tuesday column, we checked the cane situation this morning at the garment district shop of Stanley Novak, the only Manhattan purveyor of new canes with an address in the Manhattan phone directory.
We found Novak, 82, in a melancholy mood in his fourth-floor showroom among the $60 English hardwoods from Cooper's and $40 bamboos from Biancardi. There was an Italian-made B. Legno with the carved head of a jockey and hollow maple canes with compartments for swords and brandy flasks, but not a customer in sight.
Business is lousy, Novak told us. All the old people stay at home watching TV, and nobody on Wall Street wants canes anymore.
He was kind enough to share with us his views on the market, which have made him a millionaire. "I'm bullish because I have stocks," he said. "I've been buying stocks all these years."
He owns some shares in Brunswick (BC:NYSE), a maker of bowling balls and boats that is, alas, down 35% since 1997, and has concluded that the future lies in computer stocks such as IBM (IBM:NYSE), which has risen sixfold in the decade since he bought it. "We're living in a different age, you see. It's a mistake to go into stocks like Brunswick. You've got to go into these companies that go forward -- computer companies and things like that."
We believe that Novak's buy-and-hold strategy is a good one; big-money hedge fund managers and traders would do well to emulate him.
However, we cannot share his optimism for the short term. For the second time in the last year, the active contract in gold has breached 300, and something's always rotten when gold rears its beautiful head.
Gold showed comparable strength in August and September 1998, when the Russian default and near-collapse of Long Term Capital Management caused tens of billions in losses to financial firms. It also jumped during the October 1997 Asian crisis.
The active April contract's rise today of $24.10 to $314 an ounce gave Vic an eerie feeling. It was the highest level since October 1999, when gold shot up $30 in one day and rumors circulated that he was short 10 million ounces and was being squeezed.
How flattering to be thought capable of losing that much, even if Vic wasn't short an ounce. In fact, he was long about 500 ounces, because he kept two gold trophies as a reminder of good times after being forced to sell precious metals as a result of his October 1997 debacle.
Perhaps inflationary forces are ascendant again. One of our friends, who runs $2 billion, says the Treasury, by forcing yields lower with $20 billion in bond buybacks, is succumbing to political pressure to make the good times roll during the election season.
The buybacks are coming just as the Fed is trying to bring the roaring economy under control by raising interest rates. Pouring money into the economy by forcing rates lower now is like pouring gasoline on the fire, he says, and inflation will follow.
In any case, it is always appropriate for an investor to be anxious, especially when gold is going through the roof. It is known that Chairman Alan Greenspan himself pays considerable attention to gold moves as a predictor of future inflation. Various economists at brokerage firms have also quantified some anecdotal evidence suggesting gold's predictive power.
In addition to the canes, it was helpful to bring out the field glasses and specimen boxes from the closets this week. Charles Elton remarks about the study of nature that when an ecologist says, "There goes a badger," the student's thoughts should turn to the animal's place in the community to which it belongs, just as if he had said, "There goes the vicar."
Similarly, investors should consider the place of the stock market in the community of other markets that form a feedback network with it. This week, the two main influences on stocks were bonds and gold. Thirty-year bond yields touched a low of 6.04% on Thursday before closing Friday at 6.27%, down 18 basis points on the week. That was a favorable environmental influence for equities. Unfortunately, there are those troubling signals from gold.
At Novak's store, we bought a black beechwood Fayet cane from Cannes, France, with a silver-plated art-deco bird head, to ease his melancholy and to prepare ourselves for future panics, which are coming all too frequently these days.
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Laurel Kenner is a former markets editor of Bloomberg, and a trader. Former hedge fund manager Victor Niederhoffer is currently a private investor and author of Education of a Speculator. At time of publication, Kenner was not long any of the issues in this column, while Neiderhoffer held a net short position in S&P 500 futures and S&P 500 options, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While they cannot provide investment advice or recommendations, they invite you to comment on this column at mailto:%20commentarymail@thestreet.com.
